economic update and outlook mortgage investment ... · economics review of 2017 economic forecasts...
TRANSCRIPT
Economic Update
and Outlook
Mortgage Investment Association of
British Columbia
January 16, 2018
Helmut Pastrick
Chief Economist Central 1 Credit Union
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Economics
Outline:
➢Review of 2017 forecasts
➢B.C. economic and housing trends
➢Macro economic trends and forecasts
➢ 2018 forecasts
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Economics
Review of 2017 economic forecasts
Indicators 2016 2017f 2017a Diff. Trend
B.C. Employment, % change 3.2 2.0 3.7 -1.7 N
B.C. Unemployment rate, % 6.0 5.5 5.1 0.4 Y
B.C. Population1, % change 1.3 1.4 1.3 0.1 N
B.C. Retail sales, % change 7.4 7.0 9.8* -2.8 N
Prime rate, % 2.70 2.70 2.89 -0.19 N
5-yr mortgage rate, % 4.66 4.75 4.76 -0.01 Y
Source: Statistics Canada, C1CU. f = forecast, a = actual, 1. As of Oct. 1. * YTD Oct.
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Economics
Review of 2017 housing forecasts
B.C. Indicators 2016 2017f 2017a Diff. Trend
Housing sales, % change 9.4 -12.0 -7.5 -4.5 Y
Housing starts, % change 33.1 -6.0 4.4 -10.4 N
Average sale price, % change 8.6 -3.0 2.7 -5.7 N
Lower Mainland HPI, % chg. 26.6 2.0 13.9 -11.9 Y
Private rental apt. vacancy
rate1. 1.3 1.0 1.3 -0.3 N
Source: CREA, CMHC, C1CU. f = forecast, a = actual. 1. As of Oct.
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Economics
Growth holds up
0.6
0.8
1.0
1.2
1.4
1.6
Q1-13 Q1-14 Q1-15 Q1-16 Q1-17
Per cent change y/y
Source: Statistics Canada, Central 1 Credit Union. Latest: Q3-17
Population Growth Quarterly: British Columbia
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Economics
International climbs; interprovincial falls
-2
0
2
4
6
8
10
12
14
16
Q1-13 Q1-14 Q1-15 Q1-16 Q1-17
Net international
Net interprovincial
Net natural
Persons - thousands
Source: Statistics Canada, Central 1 Credit Union. Note: Seasonally adjusted. Latest: Q3-17
Population Growth Components Quarterly: British Columbia
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Economics
Labour market trends: B.C.
2.35
2.40
2.45
2.50
2.55
2.60
2.65
Jan-15 Jan-16 Jan-17
Labour Force
62
63
64
65
66
67
Jan-15 Jan-16 Jan-17
Participation RatePer cent of pop.15+.
4
5
6
7
Jan-15 Jan-16 Jan-17
Unemployment RatePer cent of labour force
Source: Statistics Canada. Note: Seasonally adjusted. Latest: Dec-17
Persons – mil.
2.20
2.25
2.30
2.35
2.40
2.45
2.50
2.55
Jan-15 Jan-16 Jan-17
EmploymentPersons – mil.
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Economics
Exports stall following large energy gain
2.2
2.5
2.8
3.1
3.4
3.7
4.0
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Current $
2007 $
Dollars - billions
Source: Statistics Canada, Central 1 Credit Union. Note: Seasonally adjusted three-month moving averages. Latest: Nov-17
International Merchandise Exports: British Columbia
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Economics
New highs
375
400
425
450
475
500
525
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Persons - thousands
Source: Statistics Canada. Note: Seasonally adjusted. Latest: Oct-17
International Tourist Entries: British Columbia
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Economics
Robust activity this year
5.0
5.5
6.0
6.5
7.0
7.5
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Current $
2012 $
Dollars - billions
Source: Statistics Canada, Central 1 Credit Union. Note: Seasonally adjusted. Latest: Oct-17
Retail Sales: British Columbia
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Economics
Investment turning up
Dollars - bil l ions
Private Non-residential Building
Construction Investment: B.C.
275
300
325
350
375
400
425
450
475
Q1-14 Q1-15 Q1-16 Q1-17
Th
ou
san
ds
Current $ 2007 $
Public Non-residential Building
Construction Investment: B.C.
Source: Statistics Canada, Central 1 Credit Union. Note: Seasonally adjusted. Latest: Q4-17
0.8
0.9
1.0
1.1
1.2
1.3
Q1-14 Q1-15 Q1-16 Q1-17
Mil
lio
ns
Current $ 2007 $
Dollars - mill ions
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Economics
Cyclical pattern – sales past peak
20
40
60
80
100
120
140
1976 1981 1986 1991 1996 2001 2006 2011 2016
Units - thousands
Source: Landcor Data Corp. Note: Arms length transactions only. Latest: 12 months ending November 2017
Residential Sales: British Columbia
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Economics
Long term rising trend
0
100
200
300
400
500
600
1976 1981 1986 1991 1996 2001 2006 2011 2016
Dollars - thousands
Source: Landcor Data Corp. Note: Arms length transactions only. 2017 is Jan. to Nov.
Residential Median Sale Price: British Columbia
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Economics
Price cycles
-30
-20
-10
0
10
20
30
40
1977 1982 1987 1992 1997 2002 2007 2012 2017
Nominal $
2002 $
Per cent
Source: Landcor Data Corp., Central 1 Credit Union. Note: Annual data. Deflated by BC CPI.
Change in Residential Median Sale Price: British Columbia
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Economics
Recent housing market trends: B.C.
6
7
8
9
10
11
12
Jan-15 Jan-16 Jan-17
MLS Residential Sales
20
30
40
50
Jan-15 Jan-16 Jan-17
MLS Residential Active ListingsUnits – thous.
10
15
20
25
30
35
40
Jan-15 Jan-16 Jan-17
Sales-to-Active Listings RatioPer cent
Source: CREA, BCREA, Central 1 Credit Union. Note: Seasonally adjusted. Latest: Dec.-17
Units – thous.
9
10
11
12
13
14
15
16
Jan-15 Jan-16 Jan-17
MLS Residential New ListingsUnits – thous.
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Economics
Prices resume rising
120
140
160
180
200
220
240
260
280
300
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Detached
Composite
Apartment
Townhouse
Jan. 2005 = 100
Source: CREA, Central 1 Credit Union. Note: Seasonally adjusted. Latest: Dec-17
MLS Home Price Index: Lower Mainland
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Economics
Vacancy rates at cycle lows
0
1
2
3
4
5
6
7
8
1992 1997 2002 2007 2012 2017
Abbotsford-Mission
Kelowna
Vancouver
Victoria
Units - thousands
Source: CMHC. Note: Private apartment and row structures, three units and over. As of October.
Rental Vacancy Rates: British Columbia Metro Areas
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Economics
Multi-unit starts surge during 2017
0
10
20
30
40
50
60
Q1-07 Q1-09 Q1-11 Q1-13 Q1-15 Q1-17
Total
Multiples
Singles
Units - thousands
Source: CMHC. Note: Seasonally adjusted at annual rate. Latest: Q4-17
Housing Starts by Dwelling Type: B.C. Urban Centres
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Economics
Scenario for end of current housing market cycle:
Economic recession or crisis event
- Notable economic recessions in 1957, 1960, 1974, 1982, 1990,
2008; housing recessions occurred in each instance.
- Price corrections varied from -10% to -35% depending on severity of
economic recession.
- 70% probability.
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Economics
Scenario for end of current housing market cycle:
Affordability squeeze, soft-landing
- Housing sales increasingly negatively affected by rising prices,
higher mortgage rates, and tighter credit conditions during next two to
four years. Additional federal policy tightening measures possible.
- Market balance steadily shifts to buyers; mild price correction.
- 30% probability.
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Economics
Beyond the cycle: the longer term to 2041
- Demand growth: B.C. 30% population increase; 35% more households.
- Land availability is critical supply constraint in metro areas; densification partial mitigation.
- Fundamental demand-supply imbalance prevails.
- Long-term price uptrend continues – prices double next 25 years.
- Further deterioration in home affordability; prices/rents outstrip incomes; relatively more renters and more multi-units.
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Economics
Global economy improving heading into 2018
-1
0
1
2
3
4
5
6
2015 2016 2017
Services
Manufacturing
0 = no change from prior month
Source: Bloomberg. Note: Seasonally adjusted. Latest: Dec. 2017
JP Morgan Global Purchasing Managers’ Indexes
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Economics
Mostly synchronous upswings in 2017; Europe leads
-4
-2
0
2
4
6
8
10
12
2015 2016 2017
Europe
US
Japan
China
0 = no change from prior month
Source: Bloomberg. Note: Seasonally adjusted. Latest: Dec-17
Markit Purchasing Managers’ Indexes
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Current U.S. recovery is weakest in post-war era
90
100
110
120
130
140
150
160
0 4 8 12 16 20 24 28 32 36 40Quarters from Trough
1949
1954
1958
1961
1970
1975
1980
1982
1991
2001
2009
Real GDP = 100 at cycle trough
Source: U.S. BEA, Central 1 Credit Union. Latest in 2009 recovery is Q3-2017.
Economic Recoveries: U.S.
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Economics
U.S. economy gains momentum from recent lows
-10
-8
-6
-4
-2
0
2
4
6
8
Q1-01 Q1-05 Q1-09 Q1-13 Q1-17
Actual
Smoothed
Per cent change at annual rate
Source: U.S. Bureau of Economic Analysis, Central 1 Credit Union. Latest: Q3-17
U.S. Real GDP
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Economics
Lower unemployment rate; wages rising faster
Per cent of labour force
Unemployment Rate: U.S.
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan-14 Jan-15 Jan-16 Jan-17
Hourly Median Wage Rate: U.S.
Source: U.S. BLS. Note: Seasonally adjusted. Latest: Dec-17 Source: FRB Atlanta. Latest: Nov-17
3
4
5
6
7
Jan-14 Jan-15 Jan-16 Jan-17
Per cent change, y/y
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Economics
No recession near term
-4
-3
-2
-1
0
1
2
3
Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17
Per cent
Source: Federal Reserve Bank of Philadelphia. Latest: Nov-17
U.S. Leading Economic Indicator
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Economics
Recent firming
92
94
96
98
100
102
104
Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17
Europe
Japan
China
Long-term average = 100
Source: OECD. Latest: Oct-17
Composite Leading Indicator: Selected Areas
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Economics
Key External Economic Forecasts
Real GDP,
% change2015 2016 2017 2018 2019
World 3.4 3.2 3.6 3.8 3.7
United States 2.4 1.6 2.5 2.5 2.2
Japan 1.2 1.0 1.5 1.3 0.8
China 6.9 6.7 6.8 6.4 6.2
European Union 1.9 1.9 2.2 1.9 1.8
EM & DEs 4.3 4.3 4.6 4.9 5.0
Source: IMF Oct. 2017, Consensus Forecasts, Nov. 2017. Note: EM & DEs = Emerging
Markets and Developing Economies.
Global growth upshift to continue
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Economics
Strong rebound from oil recession of 2015/16
4.2
1.7
-10
-8
-6
-4
-2
0
2
4
6
8
Q1-01 Q1-05 Q1-09 Q1-13 Q1-17
Actual
Smoothed
Per cent change at annual rate
Source: Statistics Canada, Central 1 Credit Union. Latest: Q3-17
Canada Real GDP
Moderate growth ahead
Economic Forecasts: Canada
Indicator 2015 2016 2017 2018 2019
Nominal GDP, % change 0.2 2.1 5.9 4.5 4.8
Real GDP, % change 0.9 1.5 3.2 2.2 2.1
Employment, % change 0.8 0.7 1.8 1.2 1.0
Unemployment rate, % 6.9 7.0 6.4 5.8 5.5
3-mo. T-bill rate, % 0.53 0.49 0.69 1.35 1.85
10-y GoC bond, % 1.52 1.25 1.95 2.40 2.85
U.S.- Canada FX, cents 78.2 75.4 77.1 79.0 81.5
Source: Statistics Canada, Central 1 Credit Union. Note: Annual averages.
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Economics
NAFTA:
• After five negotiation rounds no significant progress
• Round six late January in Montreal, round seven in March
• Contentious items – rules of origin, dispute settlement,
supply management, procurement, sunset clause
• If negotiations fail:
• President issues written notice of withdrawl
• Six month notice period
• Congressional approval required?
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Economics
After NAFTA:
• Shift to WTO MFN tariffs: U.S.A. 3.5%, Canada 4.2%, Mexico 7.1%
• Canada-US Free Trade Agreement (CUSFTA) of 1989 remains in
force, though suspended by NAFTA.
• CUSFTA could come back into effect?
Economic impact estimates on Canada:• Real GDP -0.5% to 2023, employment -25k to -50k,
investment -0.9%, CPI -0.3%
• Negative for autos, fossil fuels, petrochemicals, business
services, metal products, M&E, food, and others
• Ontario, Alberta, Saskatchewan, New Brunswick
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Economics
2018 Economic Forecasts
B.C. Indicators 2016 2017 2018 f
Employment, % change 3.2 3.7 2.5
Unemployment rate, % 6.0 5.1 4.3
Population, % change 1.3 1.3 1.3
Retail sales, % change 7.4 9.8* 7.0
Prime rate, % 2.70 2.89 3.60
5-yr mortgage rate, % 4.66 4.76 5.55
Source: Statistics Canada, C1CU. f = forecast, a = actual. *Oct.
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Economics
2018 Housing Forecasts
B.C. Indicators 2016 2017 2018 f
Housing sales % change 9.4 -7.5 -5.0
Housing starts, % change 33.1 4.4 3.0
Average sale price, % change 8.6 2.7 7.0
Lower Mainland HPI, % change 26.6 13.9 12.0
Private apt. rental vacancy rate, % , Oct. 1.3 1.3 1.0
Source: CREA, CMHC, C1CU. f = forecast, a = actual.
Thank you